Kenya violence puts ratings, investment at risk: Fitch

By Sujata Rao

LONDON (Reuters) - Kenya's continuing post-election inter-ethnic violence will make it harder to get East Africa's biggest economy back on track and risks undermining its sovereign credit ratings, an analyst with Fitch said on Tuesday.

Fitch and rival agency Standard & Poor's rate Kenya 'B+'. The ratings, received last year, were seen as reflecting greater investor interest in the country and preparing for its debut on global bond markets in 2008.

S&P earlier this month put the ratings on credit watch with negative implications.

Fitch said at the start of January that if the violence continues further downgrades are possible.

But since then, tribal violence has spread further across the country of 36 million people after an election victory by incumbent President Mwai Kibaki which was disputed by supporters of opposition leader Raila Odinga.

The turmoil has killed about 850 people, dented the booming tourism sector and pushed the currency to a near 3-year low. It has also tarnished Kenya's reputation in the eyes of investors, who see the killings as having re-opened old inter-ethnic wounds in the former British colony.

"The political situation doesn't look anywhere nearer a settlement. The longer it takes to get a resolution the bigger the cost to the economy," sovereign credit analyst Richard Fox told Reuters.

"We are looking at the situation in Kenya on a continuing basis and it has not got any better, so we are obviously mindful of what we said earlier in the month (on rating action)."

Fox said Kenya's economy had been on a strong footing going into the election but longer term the violence risks damaging Kenya's reputation in investors' eyes.

The timing of the privatization of the telecoms firm Safaricom and a planned Eurobond that would have put Kenya on international investors' radar, are now receding, Fox noted, but warned that people should not look for a quick-fix on politics.

"Further down the line, (the violence) raises questions about long-term foreign investment. If we don't get an enduring solution people will look at the next election in 5 years time and expect something similar to happen again," he added.

Fox cited Rwanda as an example of an economy that has taken a very long time to start recovering from the genocide of 1994, though it is recording steady economic growth and investment now.

Kenya is better placed, with well-developed tourism and export industries while recent economic reforms had pushed economic growth well above 5 percent a year.

"It takes a long time to recover the reputation for stability," Fox said. "Kenya's economy has more resilience than many countries in the region so it can withstand more of a shock but it can't defy gravity for ever."